Written by

Michael E. Raynor

Published

November 15, 2013

Scientists along the Franco-Swiss border created quite a buzz when they observed the Higgs boson once and for all, andI felt just that much better knowing that the universe works the way it’s supposed to. But it wouldn’t have fazed me one bit if these headlines announced that the scientists decided to abandon their search for the particle and build a new model to explain the basic structure of matter. Learning something new and true is easier if it doesn’t really matter (at least, to the person learning it).

On the other hand, news that’s closer to home can be harder to accept. Tell me that diversified conglomerates are more dynamic than small startups, or that the United States really is better than Canada at hockey, and you will have rocked at least part of my world.

The unfortunate irony, then, is that learning something that is both new and true seems to be extraordinarily difficult when it is extraordinarily important.

My colleagues at Deloitte and I have been conducting research into the drivers of long-term profitability, and I’ve had the opportunity to discuss the work with several executives in companies that we’ve studied in detail. One such exchange was especially instructive: We spent a couple of hours with the veteran CFO of a major US corporation with revenue in the billions. The meeting began well enough, since our research categorized his company as a “Miracle Worker”—that is, an organization that has been so profitable for so long that it’s clear something more than luck has been at work. Telling someone that the company they’ve devoted their entire professional lives to is rockin’ is a good way to make a new friend.

Then it got interesting.

A defining element of our research has been uncovering how differences in key measures such as gross margin explain differences in overall performance. Our analysis revealed that over the last 30 years, this company has had a significant disadvantage in a variety of subsidiary measures (such as selling, general, and administrative costs) that has been compensated for by a shockingly large advantage in gross margin. My colleagues and I concluded that the key to the company’s superior profitability has been a highly differentiated competitive position that allowed it to charge higher prices, which made up for its higher costs.

The CFO’s response was spontaneous and vigorous (although still gracious): This could not be true. This company competes in a highly price-sensitive industry. Its marketing collateral has for decades touted low prices, and the business has been relentless in keeping costs down. Entertaining the notion that high prices have been the key to sustained success made this man physically uncomfortable. His initial posture—leaning back in his chair, a relaxed face—transformed into a pinched hunch as he studied my charts and quizzed me on our calculations.

So it went for nearly two hours, at which point I witnessed a remarkable transformation: He sat back, his eyes unfocused, then looked at me with surprising equanimity. “You know,” he said, “I think you’re right.”

For the next couple of days, I was feeling very pleased that we’d managed to convince him with the power of our analysis and the elegance of our arguments.

I have since realized that the true hero of this story is the CFO. What warrants attention is not that we could teach this CFO anything new but that he was able to overcome his initial, knee-jerk reaction. In other words, it’s not teaching that’s difficult—it’s learning.

The reason learning is so difficult is based in part on our hard-wiring. fMRI analysis of people making decisions reveals that by the time we are consciously aware of new information, it has already been processed by our “old brain”—those bits of gray matter at the back of our skulls whose responses are entirely emotional. Problems arise not necessarily because our emotional responses are irrational but because they draw upon a very limited vocabulary: Can I eat it, can it eat me, can I mate with it? The complex challenges and opportunities of the modern world require a range of responses that goes far beyond this limited repertoire.

Consequently, new information that challenges long-held beliefs often triggers an atavistic, emotional response that is all-too-often negative. Our rational mind then reduces the ensuing cognitive dissonance by discrediting the data that made us feel that way. I don’t know how he did it, but my CFO friend overcame his initial emotional aversion to our findings—in the course of a single conversation.

The rest of us should aspire to that level of mental flexibility. We might ultimately get there, so long as we never forget who’s really in charge of our beliefs and, hence, our actions. In the words of one commentator, our rational mind is a mouse riding, and attempting to steer, the elephant that is our emotions. We are not rational beings having an emotional experience but rather emotional beings having a rational experience. Until we embrace that fact, we will be unwitting slaves to invisible passions, unable to expand the very horizons we most dearly wish to see beyond.

Written By

Michael E. Raynor is coauthor of The Three Rules: How Exceptional Companies Think (Portfolio/Penguin, May 2013). Raynor is a director with Deloitte Services LP and the Innovation theme leader in the firm’s Eminence function. In addition, Raynor is an advisor to senior executives in many of the world’s leading corporations across a wide range of industries. His client projects and research focus on questions of strategy and innovation.

Thinking with emotions

Published November 15, 2013

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